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  CSPAN    Washington This Week    News/Business.  

    December 16, 2012
    10:30 - 2:00pm EST  

interesting. a few hours later, he issued a statement, kind of walking it back, but not really, saying he didn't want an increase in rates. but he didn't say he wouldn't do it. it seems he's trying to slightly leave the door open for an increase in rates. >> but what did you hear from cathy mcmorris rodgers on that? >> they haven't even set the table after two and a half years of fighting on this. >> that's right. >> i notice a pattern. the house will leave at the end of the week. by monday morning we're thinking, oh, this is the week it is going to happen. by thursday, the president comes out and speaks to reporters, no, no, no, we don't want to do that.
are we entering another week where we think a deal is soon on the table but by the end of the week it won't be? >> and what do you -- >> as we understand it, mitch mcconnell is trying to pass something regarding taxes. raise rates on upper income americans, as many americans are willing to do, and agree by setting that up, that in the new year they will discuss these spending cuts. of course, the problem is house republicans are saying no, we don't want this. you could see a deal on the table that puts them on the spot. >> puts the pressure on the table. >> yes. >> the house was forceful in their opposition to this, and i think it will be interesting to see, one of the things, you know, back in 2011 when they
were dealing with the debt limit, it was mitch mcconnell that came up with this concept for how they eventually dealt with the debt limit. it is interesting we are getting to hear these rumblings of mitch mcconnell trying to float that idea. >> and it could be difficult for these days of re-election in 2014, if he does something like this, he would be very talented. it is a little different in this situation. >> ed o'keefe and kathleen hunter, thank you. >> we do know the story of the cold war.
we know the main events from our point of view. we have read them, we have written them. what i wanted to do is show from a different angle from the ground up, what did it feel like to be one of the people that were subjected to this system? how did people make choices in that system? how did they react? how did they behave? one of the things that happened in 1939 is the renalon we call eastern europe had become very differentiated. these people had nothing in common with one another except for communist occupation. >> more on poland, hungary from her historical narrative "iron curtain" tonight on c-span's "q & a." >> ben bernanke announced monetary acks to sustain the
economy, including guidance on how long interest rates will remain at record lows. he said the fed will not raise interest rates as long as the unemployment rate remains at 6.5%. the chairman's remarks are an hour and 15 minutes.
>> millions of people who would like to find full time work have found only part-time work or have stopped looking entirely. a return to broad-based prosperity will require sustained improvement in the jobs market which in turn requires stronger economic growth. meanwhile, these flubflunk fluctuations largely reflect swings in energy prices, we remain below our 2% objective over the longer term. this back drop includes high unemployment. purchases of agency mortgage-backed securities continue at a pace of $40 billion per month. a pace of $45 billion per month
of securities after maturity is completed at the end of the year. in continuing its asset purchases, the committee seeks to sustain downpardon pressure to keep financial conditions accommodated thereby ensuring economic growth while ensuring inflation is close to our 2% objective. finally, the committee today also modified its guidance about future rate policy to provide more information to the public about how it anticipates market positions. i will does this after our continued discussion of asset purchases. although the committee's discussion included monthly output of asset purchases, it did not give specific dates the program may be modified or suspended. instead this will depend on incoming information in two respects.
first, we expect to continue asset purchases until we see a substantial improvement in the outlook for the labor market in the context of price stability. in assessing the extent of progress, the committee will be evaluating a range of market prices, including payroll employment, hours worked, and labor force participation among others. because increases in demand and production are normally precursors of labor productions, we will be looking at the pace of economic prosperity more broadly. second, the committee will be monitoring economic development to assess the efficasy and drawbacks of its asset purchase program. the federal reserves asset purchases over the past three years have provided important support for the economy, for example by helping to keep mortgage rates historically low. the committee expects this policy to be effective and the costs and risks to remain manageable. but as the program continues, we
will be regularly updating those assessmentsments. future evidence suggests the program's effectiveness -- if future evidence suggests the program's effectiveness has declined, we will modify the program as appropriate. the committee intends to be flexible in purchases in response to information bearing on the outlook or per seeved -- perceived benefits and costs of the program. unlike the criteria about the federal funds rate, which i will discuss in a moment, the right ra the committee -- the criteria are qual at a timive -- qualitative about the purchase programs. this will be fluns influenced -- this will be influenced by the labor market. because we expect to learn more over time we believe qualitative
guidance is more appropriate till at this time. in today's committee statement, they expect this to depend on future economic development. exceptionally low levels are likely to be warranted at least as long as the unemployment rate remains above 6.5%. inflation in the next two years is expected to be no more than two percentage points. expectations continue to be well anchored. this is a change from earlier statements in which federal funds rates were discussed in terms of a date. in the statements following september and october meetings, the committee indicated that it anticipated that low levels of the federal funds rate are likely to be warranted through mid 2015. the modified formulation
provides price stability. a strategy we believe will help household spending. by tying this to economic stipulations, this formulation should make monetary policy more transparent and predictable to the public. the change in the form of the committee's forward guidesans -- guidance does that provide information about the future path of the october funds rate. in particular, they expect the stated threshold will not be reached until 2015 and expects inflation will remain close to 2% over that period. given the committee's outlook, the guidance produced today is consistent with the committee's earlier statements that exceptionally low levels of the federal funds rate are likely to
be warranted through mid 2015. let me emphasize that the 6.5% threshold should not be anticipated as the committee's longer term estimates. the projected estimates of the longer run normal rate of unemployment is 5.2% to 6.0%. however, because changes in monetary policy affect the economy with a lag, the committee believes it likely will need to begin moving away from a highly accommodated maximum employment. this could lead to over-shooting of output and compromise the long-term objective of 2%. as the statement makes clear, the committee anticipates policy under the new guidance will be
helpful against unemployment and will remain close to the 2% objective over the longer term. modified guidance should provide greater clarity about how the committee expects to respond to incoming data, it does not put monetary policy on auto pilot. first, as the statement notes, the committee views its current low-rate policy as likely to be appropriate until the specified threshholds are met. reashing one -- reaching one of those threshholds will not automatically happen. if this were to happen at the time when expectations were subdued and expected to remain so, the committee might judge an increase in the federal funds rate to be inappropriate. ultimately, in deciding whether and how quickly to reduce policy accommodation,. committee will follow a balanced
approach and deviations from employment of its estimated maximum level. secondly, the committee recognizes that no single indicator provides a complete assessment of the state of the labor market and therefore will consider changes in the unemployment rate within the broader context of labor position. for example, in valuating a give -- evaluating a given decline, the committee will take into consideration the increase in hours work as opposed to increase in the number of discouraged workers. the committee will also consider whether the improvement in the unemployment rate appears sustainable. third, the committee chose to look at the threshhold in one and two years ahead. the committee took this approach to make clear it intinds tends to look through -- intends to
look through fu -- fluctuations and focus instead on underlying inflation trend. in making its collective judgment about the underlying inflation trend, the committee will consider a variety of indicators, including measures such as median, trim mean, and core inflation, the views of outside forecasters and the conometric and statistical models. they will also pay attention to fluctuations to make sure they remain well anchored. the committee will continue to monday fore tore a wide range of financial and economic development to ensure things are conducted in a manner moving toward our duel plans. the plan is to increase the
near-term momentum by fostering more accommodative positions. the intention is to vide circumstances under which the committee would contemplate reducing accommodations. i would emphasize a decision by the committee to end asset purchases, whenever that is reached, would not be a turn to tighter policy. the committee would no longer be increasing accommodation, its policy stance would remain highly supportive of growth. only at some later point would the committee begin removing accommodation through rate increases. more over, as i discussed today, the decisions to modify asset purchase positions are tied to different criteria. in conclusion, the fomc's actions today are part of our ongoing effort to support economic recovery and job creation while maintaining price sfabblet. as i have stressed, while monetary policy has its limits,
only the private and public working together can get the u.s. economy fully back on track. in particular it will be critical that fiscal policymakers come together soon to achieve longer term fiscal sustainability without adopting policies that could derail the ongoing policy. thank you. i would be happy to answer your questions. >> i guess i have ad. unemproacr -- you have another paragraph
that's not just targeted something else. so what good are these targets if you have to reference the calendar date? >> we will be learning about what unintended consequences they make, and we will see what
else happens to the economy that affects the levels of unemployment, for example, that we hope to achieve. so for that reason, as i discussed in my opening remarks, we decided to make the right ra for asset -- criteria for asset purchases qualitative right now because we have a number of issues we need to look at before we go forward. rates were well understood and we understand the relationships between those and rate increases and the state of the economy. so we have been able to give somewhat more quantitative and specific guidance in that regard. with respect to the date and the transition today, we wanted to make clear that the change in guidance did not happen to be the case. that it doesn't change our big 2015 expectations. going forward, we will drop the date and rely on conditionality.
that is a very important advantage, i think, in that if news comes in that the economy is stronger or weaker, then financial markets and the public will be able to adjust their expectations when policy tightening will occur without the committee having to go through a process of stages in a nontransparent way. i think that's beneficial. does that cover your question? >> what prompted the committee to make the decision at this time to pick up unemployment rates snl does that shift the balance of priorities in terms of your dual mandate closer to
the direction of reducing unemployment rather than inflationary pressures? >> very good question. we took a change today, we had a good discussion of the threshold approach at our last meeting, and we felt it was ready to go, ready to spread out. while there are different views in aspects of the threshhold approach, there were a lot that had to be considered with regard to the rate economy with more transparancy to the public than our data base guidance. we felt at some point at least we should switch to that kind of guidance. we hope it will be more helpful and give markets more information about how we are
going to respond going forward. it is not a change in our relative balance. with respect to inflation, we expect our forecast to summary of economic projections, our forecasts is this will remain despite this threshold, that inflation will remain at or below 2% going forward. in order to achieve improvement in the labor market while keeping inflation close to target. so i think both sides of the mandate are well served here. there is no real change in policy. what it says is it attempts to
clarify the relationship between policy and economic condition. >> given that your economic projections are all the more important now that you have specified these targets, is it difficult to put forward these projections now given the uncertainty of the fiscal cliff? how sort of plastic are these? >> are you talking about the s.e.p. projecks? -- projections? >> yes. >> well, with respect to having an effect upon the economy, we have not reached the point of the fiscal cliff moving in. it is already affecting business investment and hiring decisions by creating uncertainty, creating pessimism. we saw what happened recently to sentiment, which fell in part
due to concerns about the fiscal cliff. so really this is a major risk factor and a major source of uncertainty about the economy going forward. i would suspect, although the participants don't make this explicit plift, what i am assuming is that the fiscal cliff gets resolved in an intermediate way whereby there is some fiscal drag but not by as much as the entire fiscal cliff. i think that probably the underlying assumption that most people took when they made their projections. you are absolutely right, there is a lot of uncertainty right now, and if the fiscal cliff situation turns out to be resolved in a way different from our expectations, i'm sure there will be changed in the forecast.
>> can you talk about whether the bond purchases represents a ramping up or easing of that policy? because you will now be adding more to the balance sheet. also, you talk about maintaining substantial improvement in the labor market, and you say you want to take a qualitative approach, but you also want inflation threshold. what do you see in this regard? >> the first part of your question? >> is this an additional stimulus? >> no, i think this is a continue indication of what we said in september. you recall in september, we expressed satisfaction request progress in the labor market. at that point we began the $40 billion per month of purchases.
and we said unless we saw substantial improvement, we would undertake substantial improvement or other actions. that's what we have done today. we said we would follow through on what we said we would do in september. relative to last month, i don't think we have added to accommodations. the reason is that, at least in my view, and i think for many of my leagues, what matters primarily is the mix of assets on the balance sheet, on the asset side of the balance sheet. what's important is the fact that we're requiring treasury securities and m.b.s. taking those out of the market, forcing investors into other close ri related assets. that's where the stimulus comes from. not so much on the side of the balance sheet sheet, per say. in my judgment, the amount of stimulus is more or less the same. it is being continued as the
follow-through from what we saw in september. in terms of criteria, again, what we have done is we have announced an initial amount of $ 5 -- $85 billion per month. we are prepared to bury that as new information comes in. for example, as the economy's outlook comes in, we would begin to ramp down the level of purchases. we will be looking at labor market. we will also be looking at factors affecting the outlook of the economy. after the -- as i have said many times, i don't think the federal reserve has the tools to offset the fiscal cliff.
in that respect, we have to temper our expectations of what we can accomplish. likewise, we will be looking at efficasy and cost. if be find -- we expect it to be efficacious, but if we find various costs emerge we are not anticipating, that will also have to be taken into account. we ourselves don't know precisely what would define substantial improvement, but obviously as long as the costs and other concerns do not emerge, we will be looking for, you know, something that is substantial. so a better jobs market. >> peter cook, bloomberg television. if i could follow your last response there, is it possible that if policymakers were not to
agree to some sort of deaf set, the size of these asset purchases could grow in response to that? more specifically, you coined the phrase "fiscal cliff" and i want your take on whether you feel it is still the most appropriate language to represent what could happen at the end of the year. there are some plerns that could be alarmed -- americans that could be alarmed by the language. do you feel it is still appropriate if there is a contraction that could come if there is no deal? >> the first part of your question is, if the economy actually went off the fiscal cliff, our assessment, the c.b.o.'s assessment, all outside forces think that would have an adverse effect on the economy and on the unemployment rate. so on the margin, we would try to do what we could. we would perhaps increals a bit. but i just want to, again, be clear, that we cannot offset the full impact of the fiscal cliff. it is just too big given the
tools we have available and limitations on our policy toolkit at this point. in terms of the terminology, well, people have different preferences about what they want to call things. i think it is a central term because i think of the fiscal policy as providing support to the policy. if fiscal policy becomes contractionary, the fiscal policy, i think, will go off the cliff. it is reasonable to think this. i don't buy the idea that a short-term descent off the fiscal cliff would not be costly. i think it would be costly. in fact, we are already seeing the costs. why is it consumer confidence has dropped so sharply this week? why has faul small business confidence dropped so sharply? why are the markets volatile? why is business investment among
the weakest levels during the recover? i think all of these things, to some extent, can be traced to the anticipation or concern about the fiscal cliff. i think that, you know, we don't know exactly what would happen, but i think there is certainly a risk that it could be serious, and therefore i think it is very important, and the most helpful thing that congress and the administration could do right now is find the resolution that on the one hand achieves longer sustainable activity healthy for a stronger economy but also avoid derailing the economy, which is currently in progress. .
>> that's a good question. we don't have a precise estimate of the long run sustainable unemployment rate. the estimates that were provided in the summary of economic projections today, as has been the case for a while, is 5.2%-6.5%.
that gives us some time. my anticipation is that the removal of accommodation after the takeoff point, wherever that occurs, would be relatively gradual. i don't think we are looking at a rapid increase. that depends on where inflation is and other conditions but the path that we are basing these numbers on is one that assumes an increase in the funds rate first occurring sometime after unemployment goes below 6.5% but does not necessarily assume a rapid increase after that. we said we would take a balanced approach. when we get to that point, we may or may not raise rates at that point. we will look at the situation.
assuming inflation remains well-controlled, which i fully anticipate -- i think to rate of increase would be moderate -- the exit strategy that we put out is consistent with our statement today because the exit strategy was primarily about how we would normalize the balance sheet over time. we have not made any changes in that and we believe some increase in the size of our balance sheet is consistent with that general sequence that we laid out in the minutes a year and a half ago. that being said, if the balance sheet gross, women have to consider the timing of that but i don't see any changes that would radically change the time for normalization or the time to exit. >> i will continue the two-
question trend -- on the fiscal cliff, it sounds like you would prefer fiscal consolidation to support the recovery. if people in congress can add to that in the next two weeks, do you think postponing all fiscal consolidation is preferable to going over the fiscal cliff? can you also give us more color on how you get to the threshold and what the alternatives were and how you weigh various alternatives within your policy? >> sure, i am hoping that congress will do the right thing on the fiscal cliff. there is a problem with kicking the can down the road. it might avoid a short-term impact but it could create concerns about our longer-term fiscal situation and i don't want to see that.
it is in the best interest of the economy to come to a two- parts solution -- part one is to modify fiscal policy in a way that does not create enormous headwinds for the recovery in the near term. part two is to take important steps to achieving a framework, at least, by which further negotiations, the congress and the administration, can achieve a sustainable path for fiscal policy. both of these parts are imported and i don't think we can consider these negotiations a success unless both of them happen. >> [inaudible] >> i think they are equally important on the threshold numbers, this -- these numbers are based on substantial
analysis done by staff here and that the reserve banks, trying to assess under optimal policy or the best policy we can come up with what with the interest rate that look like and how it would be correlated with changes in unemployment and inflation. when we do that analysis, we find that the best interest rate path, as best as we can determine on our models which is imperfect, has rates remaining low until on employment dropped below 6.5%. it projects -- we put in half a percentage point above the goal as a protection against any problem of price stability but are the actual forecast suggests inflation will not go there but it will stay around 2% which will be consistent for our
longer-term objectives. if we get important new information about the structure of the economy, it is possible but i consider relatively unlikely and this is one of the advantages of this approach over the date-based approach. if information comes in which says the economy is stronger or weaker than we expected, that would require a change in the date. it does not necessarily require a change in the threshold because that date adjustment can be made by markets by looking at their own forecast of what unemployment will be and the behavior of inflation. >> when you were appearing on "60 minutes," you've visited your old home town and you talked a little bit about how the economy had affected people that you grew up with and defected to the people down there. -- and affected the people down there. there are regular people in the
countryside wondering what happens to them if we do go over the federal cliff. taxes go up in spending goes down -- do they need to look for recession and are employers really going to cut back on employment? what do people really need to worry about and prepare for when it comes to actually going over that fiscal cliff? >> by come from a part of south carolina which has been economically challenged for quite a long time and remain so. certain parts of south carolina have developed strongly but the part where i come from, mostly agricultural and a little bit of manufacturing, has a high unemployment and foreclosure
rate and people are having a hard time there. i visited a few times since i became chairman. part of the reason that we are engaging these policies is to try to create a stronger economy with more jobs so that folks across the country, including places like where i grew up, will lead more opportunities to have better lives for themselves. that is extremely important and i think it is important that we not just look at the numbers. it is easy to look at the unemployment rate. every tenth means many people are represented there in the numbers.
it is important to keep in mind the reality of unemployment -- the foreclosure and weaker wage growth so we tried to do that. it is always a delicate balance but you don't want to scare people. i actually believe that congress will come up with a solution and i certainly hope they will. as many analysts have pointed out, if the fiscal cliff was allowed to occur and if it were sustained for any period, it could have a very negative affect on hiring, jobs, wages, economic activity, investment and the consequences of that would be felt by everybody but certainly by those in areas like where i grew up that are relatively in a week -- in -- are weak economically. it is urgent and important that congress administration come to a sensible agreement on this issue. >> i had a follow-up -- i will not ask about a bond bobbled but the new guidance that you have given in the fmoc state men will give more clues
to people on bonds about when they might start lightening up their bond portfolio and changing their composition of what they own. were concerns about things happening in a big heart rate in bonds -- was that a consideration in adding this transparency? >> i would not say it is an important motivation for adding transparency. transparency has a lot of value but is a factor that is greater clarity will help markets better predict how bond yields will be gave. if the economy continues to strengthen, as we hope, as the exit comes closer for the federal reserve, you would
expect longer-term bond yields begin to rise and the more information we can provide to markets about conditionality under which the fed would consider moving accommodation, the better information we will have and that will allow for a smoother adjustments. i think that is a positive aspect of this communication. i would not say it is the major reason. the major reason is to give the public more transparency about what is determining our policy but that is one potential advantage. >> you said a moment ago that these thresholds were based on analysis of optimal policy. in the october policy in the past, the vice chairman laid out the first interest rates curring in 2016 and rates are rising slowly after that. is that the policy the fed is
following? secondly, you referred to a number of inflation forecasts in your introductory remarks. how will we ever know that the inflation threshold has been hit? >> the kind of optimal policy path that vice chairman yellin showed is indicative of the kind of scenario is we have run. the general character of the interest rate path, that it stays below until unemployment is in the vicinity of 6.5% or lower and then rises relatively slowly which goes back to the question asked earlier that it does not involve a rapid removal of accommodation after that is reached.
that is consistent with that kind of analysis and that is the type of analysis that is not the only thing we looked at but was informative and our discussion. in that kind of policy path of the type she discussed, you notice that inflation stays close to 2%. in terms of the inflation forecast, what the committee will do on a regular basis is include in its statement, its views of where inflation is likely to be one year from now. for example, currently, we expect inflation to run at or below the kid many's objections and the longer term. -- the committee's objections in the longer term. if we maintain low rates along the lines suggested by this policy, would we expect inflation to cross the threshold or reach that level? it is important that the public and of the media and the markets find our projections
credible, obviously. for that reason, we will be referring extensively to public available information such as various measures of inflation. there are outside forecasts, the break evens from inflation- protected bonds. etc. if our outlook deviates in any sense in a significant way from what all these things are saying, it would be incumbent upon me and the rest of us to explain that. my expectation is that our projections will be broadly consistent with public views, public information, and so i think we can manage the credibility issue.
to be clear, the projection that matters for our determination is the one that the committee collectively comes up with. >> you have articulated your commitments to reduce unemployment. you have also said you're not actually doing anything more to achieve that goal. you expected to be three years away and you are disappointed with the pace of progress and inflation is not the limiting factor. what is the limiting factor? what are you not announcing additional ways to reduce unemployment? >> september was the date where we did a substantial increase in accommodation. at that point, we announced our dissatisfaction with the state of the labour market and the outlook for jobs. we said we would take further action if the outlook did not
improve. what we have done today is to follow through on what we said. looking at it from the perspective of september, we have taken significant additional actions to provide support for the recovery and job creation. one of the considerations, which i have talked about, is given that we're in the world of on conventional policy that has both on certain costs and benefits, that creates a somewhat more complicated policy decision than the old style of just changing the federal funds rate. there are concerns that i have talked about in these briefings before that if the balance sheet gets indefinitely large that there would be potential risk in terms of financial stability and market functioning.
the committee takes these risks very seriously and they impose a certain cost on policy that does not exist when you're dealing with the federal funds rate. we are trying to balance the potential benefits in terms of lower unemployment and inflationary targets. as the balance sheet gets bigger, there are greater costs that might be associated in those have to be taken into account. > given those actions, it will be three years until you achieve your goals. is the message "we are doing all we can?" this is the most we can expect? >> first of all, the projections you are looking at -- this is not a committee
collective projection. it is 19 separate participants making their own projections based on their own views of policy. it includes those folks who think we should not be doing any more purchases and their forecasts are included in there as well. it is not an apples to apples comparison. it is true if we could wave a magic wand and get unemployment down 5% tomorrow, we would do that but there are constraints with the dynamics of the economy, in terms of the power of these tools and in terms of the fact that we need to take into account the possibility of
other costs and risks that might be associated with a large expansion of our balance sheet. >> just following up on that last question, how helpful would it be to see as part of the resolution some near term stimulus? the president has proposed that. how helpful would that be? what ever happened to your southern accent? [laughter] >> on the second one, i would like to think i am bilingual. when i go home, sometimes it comes out pretty strongly but i will not try to do that here. i tried to be careful -- try to be careful to not give it views on specific tax programs. those are the province of the administration and congress. the attitude i have taken is that at a minimum congress should try to avoid policies that significantly derail the
recovery at this point. along with the long term objective of achieving a sustainable fiscal path. given that basic recommendation, congress can consider variations. for example, if they believe they can achieve a strong, credible future path for the school policy, that would give -- for fiscal policy, that would give them potentially some space to do more expansionary in the short term but those are judgments i think congress has to make about whether they can simultaneously continue support of fiscal policy in the short term while maintaining the credibility they will be
addressing our structural deficit problems in the longer term. that is a question for them and their staff. >> looking over the past year or several years, how would you evaluate the fed accuracy of making economic forecasts and how does that affect decisions connected to the threshold? >> it is fair to say that we have over estimated the pace of growth, the total output of growth, gdp growth, from the beginning of the recovery. we have therefore had to scale down our estimates of output growth. interestingly, at the same time, we have been more accurate in forecasting unemployment. how do you reconcile those two things? i talked about this in remarks i gave right before thanksgiving. i think the reconciliation is
that what we are learning is that at least temporarily the financial crisis may have reduced the underlying potential growth rate of the u.s. economy. it has interfered with business creation, investment, advances, and so on which can account for at least part of the somewhat slower growth. at the same time, what monetary policy influences is not the underlying structural growth in bank that is for many other different types of policies. monetary policy affects primarily the state of the business cycle, excess unemployment, or the extent of the recession in the economy. there we also under estimated the recession but we have been much closer there. i think therefore we have been able to address that somewhat more effectively with quite accommodative policies.
that being said, of course, we have over time as we have seen disappointments in growth and job creation, as we did in september we have added accommodation and we continue to reassess the outlook. i think it is only fair to say that economic forecasting beyond a few quarters is very, very difficult. what we are trying to do is create a plausible scenario which we think it is reasonably likely but be prepared to adjust as information comes in and as the outlook changes. inevitably, it will. >> thank you, mr. chairman. economists have long believed that single banks cannot affect
unemployment in the long run. can you explain if the fed by tying its monetary policy to an unemployment threshold is consistent with that longstanding view? if so, how is it superior? with the approach that you are now taking be possible if the fed only had a mandate for low inflation? >> it is entirely consistent with the point that you made. as we stated in our january set of principles, the central bank cannot control unemployment in
the long run. there is a the bill bit of a caveat here. very extended periods of unemployment can interfere with the workings of the labor market. if the fed were not to address a large and unemployment problem for a long time, it might have some influence in the long term unemployment rate. i think this is the right baseline. , as a general rule. the long term unemployment rate is determined by a range of structural features of the economy and a range of economic policies and not by monetary policy. that being said, what our 6.5% threshold is as i said not a
target. it is a guidepost in terms of when the beginning of the reduction of accommodation could begin. it could be later than that but at least by that time, no earlier than that time. so, it is more like a reaction function or eight taylor role, if you will -- or a taylor rule, -- i'm ready to get a phone call from john taylor -- but it relates policy to observables in the economy such as unemployment or inflation. it has no implication that we can affect the long run and implement rate which we believe is lower than 6.5%. we think it is somewhere between 5% and 6%. bank. we think providing information from both sides is helpful. i think providing information
on unemployment and inflation gives more information to the market to the public that allows them to infer how our policies are likely to evolve. >> [inaudible] >> so long as the inflationtha condition is met. that's correct. >> mr. chairman, i would still like to hear more about why you made this announcement today specifically tying federal funds and your policy to the 6.5% number. i am sure you have a theory about what you hope will change in the economy about this announcement. if so, what is it? >> we think it is a better form of communication. we think by using the
thresholds which ties rates to economic conditions, we are more transparent about what is going to determine our policy in the future. the date base guidance served a purpose but a had a problem that whenever economic outlook change, the committee was faced with the question of whether we should change the date base guidance. process. we did change it a couple of times. no one understood why we were making particular changes because we were not providing information about why our economic outlook. i think this approach is to. -- is the superior. . there may be other things we can do in the future to improve our communication but i do think it will allow the market to
respond quickly and promptly to changes in the outlook by adjusting when they think rate increases will begin and therefore will act as an automatic stabilizer so if the outlook worsens leaving markets to think that the increase in rates is further out in the future, that will tend to be supportive of the economy which has an automatic stabilizer type of defect. it is a better form of communication. frankly, given that it is a relatively complex change, it seems like it would be a good idea to do it at a meeting with a press conference. since we're ready to go, we decided why not make the change earlier and get the benefit earlier.
>> did you see a level of uncertainty in the business community that you hoped to solve by this announcement? >> at the moment, the expectations of the business community happen to be pretty well aligned. if you look at the federal market indicators, it is pretty consistent with the mid 2015 base guidance we were providing. that was not really the issue. there was no major inconsistency. the problem is that looking forward, what happens if there is insignificant change either for the better or for the worse in the outlook under the date base guidance? that would require the committee to make that change in a non-transparent way. under this threshold based
bidens, the market and the guidance, the market and the calculation on their own and adjusted their estimates on when rates will increase based on their own forecasts. we just think it is a better approach. >> by mid 2015, the recovery is going to be six years old. the average recovery has been a little less than five. we are already banking on a very large expansion. your balance sheet is potentially at $4 trillion. if the business cycle runs out of steam and you are at 0%, does the fed no longer have a forceful response in that situation? >> the fed will always -- we have innovated quite a bit in
the last few years and is always possible that we can find new ways to support the economy. there is no doubt that with interest rates near 0 and with the balance sheet already large, the ability to provide additional accommodation is not unlimited. that is an argument i think for being more aggressive now. it is a really good objective to get the economy moving, to get some momentum which protect the economy against unanticipated shocks that occur. so, exactly for those reasons, the kinds of risks that arise when policy interest rates are close to zero and the greater difficulty of providing additional support, i think that is an argument for being somewhat more proactive now while we still have the ability
to do that to try to get the economy back to help the-- to healthy conditions. >> my question pertains to the volcker rule. regulators seemed cautiously optimistic they would be able to finalize it by the end of the year but that seems unlikely at this point. lawmakers are calling for a two-tier implementation delay on the rule. can you tell us where things stand at this point? at the agency's been able to work out their differences? if you may, a prediction on when we will see the rule. >> it is a difficult, complex rule asy ou know. we had 18,000 comments or something like that.
it is a lot to look at and there were a lot of concerns that arose even from foreign commenters on the effects of their bond markets. i think there is quite a bit of agreement on key points among regulators at this juncture. of course, if congress gives us other instruction, we will follow that. it is our intent to try to get this done early in 2013 conference with us, we have had an election. governor romney said he would not reappoint you to a third term as chairman. president obama did not weigh in on the issue but he did win re-election. if the president were to call you and say, "your country needs your continued stewardship
at the federal reserve. we need you to stay and finish the job, see this through." would you consider it? would you do it? have you had any conversations to that effect with the president or with his team? >> no, i have not had any conversations. i think the president has quite a few issues he has to be thinking about. from my own perspective, i really don't have anything to add from the last press conference. i am very much engaged in this difficult issue that we are discussing today and i have not been spending time thinking about my own future and i don't have anything to add there. >> two questions. one. having to do with the cpi's about chain cpi as an economist. is there a logic in going
through that? and again, with the labor market, you talked about the importance of the broader conditions. a big debate talks about people being beamed to mars. market? are we creating jobs? what is your sense of how quickly it has fallen because of new employment? >> on the first question, the chain cpi is a technical issue. it is technically better according to most economists because it allows for changes in the mix of goods and services that people actually consume more effectively.
however, whether that is more appropriate for social security indexing or not is a political decision. i suppose a rejoinder would be neither man necessarily be a particularly good measure for the cost of living for social security recipients. those are the kinds of questions that congress is going to have to deal with. the second part of your question was -- >> [inaudible] the debate over the extent to which the unemployment rate -- >> yes. you can see the comparison by looking for example at the household survey which gives
estimates of how many people are added to the labor force, how many are added to the employed, how many people are leaving the labor force. it is true that over the recovery, part of the decline has come from declines in participation rates which is people leaving the labor force. some of it appears to be due to longer run factors -- aging, the example. there have been some additional decline in labor force participation which presumably is linked to discouragement about the state of the labor force. that is certainly part of the issue. there has been a good bit of job creation which you can see in the household survey or payroll establishment survey. i think there is no doubt the
labor market is better today than it was two years ago. it is also the case that many indicators of the labor market remained quite weak ranging from the number of longer-term unemployed, at the number of people who have part-time work that would like full-time work, wage growth is obviously very weak, and i could go on. so, it may be that he labor market is even a bit weaker than the current unemployment rate suggests but i think it is nevertheless the case there have been improvements since the trough a couple of years
ago. >> how concerned are you that market will have to tank in order to get lawmakers to reach a deal on that this " cliff? is there a washington-wall street disconnect? >> interesting question. i certainly hope that markets will not have to tank. we want to have confidence not just in market but in businesses and households as well. the best way policy makers cna achieve that is by coming to a solution as quickly as possible. markets have obviously already responded to some extent up and down to news about negotiations.
on the other hand, it is also true -- if you look at the experience of the debt limit debate in august 2011, and both confidence and markets remain pretty sanguine up to pretty close to the point where it looked like there was a chance that the debt limit would not be riased. then, of course, there was a pretty sharp shock to confidence about the time of the final debates. so, it's not unusual to see markets being complacent. of course, from a market point of view, there is at risk to both directions. if things go well, that would be good news and may be right now markets are taking an average of those two
possibilities. policymakerk any including the fed should be responding to markets. what we should be doing is making policy based on the fundamentals and doing what is best for the economy. follow that as well. >> mr. chairman, with the federal government borrowing roughly $1 trillion by year and now with the fed on pace to buy roughly eight trillion dollars a year in bonds, are you concerned about a public and possible global perception that the fed is accommodating not just growth but accommodating federal borrowing needs?
are you concerned about what this might do to the fed's credibility and the credibility of u.s. finances in general and the credibility of the dollar as the world's leading currency? of facts. we are buying treasurys and mortgage-backed securities. we are buying considerably less than the treasury is issuing, and moreover, the share of the outstanding treasurys own it is not all that different from what it was before the crisis because while our holdings have increased, as have the stocks in public hands. it is not quite evident there has been a radical shift there. we have been increasing our balance sheet for some time and
we have been very clear that this is a temporary measure and a wya to provide additional accommodation to an economy that needs support. we will normalize the balance sheet either by letting them run off or selling assets in the future. this is only a temporary step. it would be a quite different matter if we were buying these assets and holding them indefinitely. we are not doing that. we are very clear about our intentions. i think up until now, it seems our credibility has been quite good. there have been no signs of current inflation or strong
evidence that there is an increase in inflation expectations. this is one of the things we have to look at. i talked earlier about potential costs of an large balance sheet. we want to be sure there is no misunderstanding or effect on inflation expectations. that is one of the things we have to look at. to this point, there is no evidence that people are taking it that way. i think is worth pointing out we're not the only central bank that has increased the size of its balance sheet. the japanese, the europeans, the british, they have done the same.
i think these sophisticated market players and the public understand that this is part of a need to provide additional accommodation to weak economies and not an accommodation of fiscal policy. >> last but not least. there seems to be growing evidence that some of the mbs purchases, the impact is banks are holding on to some of the gains and not passing them onto the borrowers. is there anything you can do about that and are you concerned about that? >> the question is about the spread between the mortgage rates that the public pays and the yields to mortgage-backed securities that banks may hold. the question is, is that spread weidening so that the full benefit of the reduction in
yields is not being passed through. that is the question. heard it. [laughter] so you could answer it. our analysis suggests that it takes time. two points. the first point is that while we don't expect 100% passed through a of yields to mortgage rates, our empirical and theoretical analysis suggest that over time, the great majority of the decline in mbs yields does get passed through to mortgage rates. we do anticipate over time that
the full benefit or most the benefit will be seen by retail customers. but one thing that is perhaps confusing this issue is there are other things happening in the economy that are affecting those spreads. for example, there are capacity limitations which are allowing banks to charge higher yields. there are extra costs or concerns about putback risk. there are higher fees. there is a number of things that will raise that spread between mortgage rates and mbs yields. that is unfortunate. what we can try to do is try to encourage good policy that will reduce the perceived risk of cost to banks of making mortgage loans. but again, i think most of those things are not really in our control. again, taking all those issues as a constant, it does seem to
be the case that over a period of time, most of the declines in mbs yields do find their way through to mortgage customers and thereby strengthening of the housing market. >> thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> president obama will be in new to an incoming connecticut, this afternoon. -- in newton connecticut, and he will be talking to the families and thinking the first responders. he will be speaking at an interfaith vigil beginning at 7:00 p.m. here on c-span. >> the white house was very
controversial. the designer of washington's city, there is a competition and he submitted a design for a palace. americans did not want a palace. it was not particularly on inspiring. a european diplomat in 1821 told them that it was neither a larger war ought inspiring. the answer the congressman -- neither larger nor awe inspiring. he said if it were larger perhaps a president would want to become a permanent resident. >> a few of her favorite white house photographs in "the white house." watch tonight on "american history tv." >> on wednesday, house budget committee ranking member chris
van holler said he was concerned speaker boehner may be stalling on the fiscal cliff negotiations. he made the comments at an event hosted by the christian science monitor. this is about 45 minutes. >> listen, i'm going be really brief in my opening remark. i think the president and the democrats have two objects as we approach the fiscal cliff. number one, we're trying to accelerate what remains a fragile economy. number two, come up with a balanced approach to long-term deficit reduction. we have to deal with the long- term deficit reduction for a long-term economic growth. a balanced plan means a mix of cuts in revenue. we already agreed to over a trillion dollars in cuts but on top of that, the president proposed additional cuts along with high-income individuals.
his plan has been out there, it's on the internet. i know people are asking for specifics, but the reality it is there. in fact, when i made my remark i held up a copy of his plan to remind people it is not that the president doesn't have a plan, it's that our republican colleagues may not like it but it is there. so with that i will -- >> let's go around the table. so you're experienced in this, what is the practical deadline for the formulation of a deal, kind of a rough outline if you want to get it done before the year runs out? >> before the end of the year? you have to get something by christmas if up to practically get it done by the end of the year.
>> if you want to avoid the christmas holiday problem, you would have to get it done by the end of this week? >> i would say by the end of this week is the most practical time. i don't assign a high probability to the end of this week, i assign a high hope but not necessarily a high probability. >> i know there is radio silence with the press but are key committee chairs and ranking members such as yourself being briefed? >> i don't know the full extent of the consultation. i do know the top leaders and some others have been kept informed, yeah. >> one last from me then we'll go to brine. how confident are you that you and other democratic leaders are mustering democratic votes
if the deal affects the cost of living for social security and medicare age jilt? if boehner can get his people, can you get your people? >> we doe known what is in agreement right now but those two particular items create significant concerns within most of the democratic caucus for policy reasons. on the medicare age piece, we think there are far better ways to reduce medicare costs. we think we should build on the model of the affordable care act which reduces costs overall in the melt care system, not simply transfer rising health care costs on the backs of seniors. there are some provisions in the president's proposals that do it the way i suggest. i would point out, if you look at the president's budget proposal over the next 10 years it has more in the way of medicare savings than the ryan republican budget that passed
the house and the senate had over the next 10 years. when the republican colleagues put these big numbers on the table just remember, the president's budget proposal, again, over the next 10 year, the one that was adopted before has more medicare savings. he does it in a different way than republicans. for example, he asks pharmaceutical companies to pay the same rebates they were paying in 2003 for prescription drugs. but he has more savings but he doesn't pass the cost on to the backs of seniors whose medium income is under $22,000. i would also say it has other impacts in terms of policy with interaction on the affordable care act. in terms of social security, our view is that social security needs to be dealt with
on its own terms. right now the social security system is owed over $2.2 trillion. after that point in time, it can pay 75 cents on the dollar. we need to work together in a bipartisan way to fix that, you know, 25 cent on the dollar hole beginning in 2033. we do not believe we should take from social security as part of these deficit reduction talks. then there are other specific issues that relate to seniors who get very old because of its compounding effect it has significant affects on people's income the longer they live. >> we're going to go to brian butler. >> a lot of republicans are talking about the possibility
that january 1 -- that maybe the house passes the bill but then they turn around and do what they want to do in terms of entitlements. are democrats ready for that? >> i think this notion that republicans are going to threaten the united states and the international economy to exact certain demands is one that the american people are not going to stand for this final. which is why the president has made clear is "not going to play that game." if you think the fiscal cliff has the potential to have a negative economic impact, and it does to a -- especially if you go far into january and beyond. but fooling around with the debt ceiling is catastrophic. i don't think our republican colleagues are going to gain any sympathy from the american
public when they are threatening to tank the u.s. economy. i know all of you understand, but i think it is important that people following these discussions recognize that lifting the debt ceiling is not to borrow money to pay for new things. it is to pay for bills that the united states has already incurred, that congress has already voted on. it would be like getting up one morning and saying we're not going pay our mortgage or it is like if we all spend on the credit card, buying things we like, then we're not going pay the bill. so for the united states of america to wake up one morning and say we're not paying our bills would be economic catastrophic. people will not stand for that this time around. >> does that rule skip operative or can you see a way
that they can do the heavy lifting and you can get enough votes to get it over? >> as i look through different scenarios i think the idea that the speaker may have to bring something for the good of the mg something to the floor of the house that does not get the majority of the republican votes may be necessary to get something done. i think the biggest impediment right now is the speaker's ability to get a decent number of republican votes for an agreement that most people would agree was fair. the president has been clear, he has been willing to make some tough compromises. he also wants to remind people that he won the election talking about a lot of these same issues. whenever agreement we reach
should reflect that reality. but whenever it is he is willing to make that compromise. one way to get this done, and people should understand that we can get this done if the speaker is willing to bring to the floor of the house a bill that did not necessarily get a majority of republican votes. i am increasingly concerned that one of the reasons the speaker is stringing out these can -- these discussions is to wait to january 3, when the election for speaker takes place. he is concerned that any agreement that he reaches, if it violated the rule and undermined support for him in his caucus could make it more difficult and january 3. i would hope that he would put the interests of the agreement before republican politics.
>> next we're going to magnitude. >> [inaudible] no one is talking about these defense cuts. these defense cuts being addressed or talked about? can they be offset in some way? >> one of the reasons that sequestration has gone less attention is because the operating assumption and understanding of the pieces is
you can use the deficit reduction from the other components, the revenue components, to replace the sequestered. whether it is replaced on a 10- year basis for over one year, it is less in natural outlays. whenever we come of with as part of an agreement should be able to offset the first year of the sequestered. the other issue would be if you cannot get an agreement on all of the issues, including the tax peace, could you come up with a smaller package to avoid sequester? that is possible. i do not know how likely. we could do that quickly if people were willing to put
together a package of $110 billion in revenue and cuts to replace the sequestered for one year. >> chris? >> tell me what you think the legacy of the congress will be? we're at a brink of an economic disaster. what does this mean for where congress is heading? >> well, i think, i mean, we know the 112th congress, at least is judged by the american people and also judged by overall work product has been one of the least productive congress in recent history. a lot less productive in previous period, 2008 to 2010. most of it was consumed -- most of the energy was consumed on these budget issues and the reason we're here today, on the edge of the fiscal cliff is this congress, at least so far,
has not resolved those big issues. that is starting with the biden talks, we obviously accomplished some savings as part of the budget control act. i want to emphasize, not people around this table but others forget, we agree to $1 trillion in cuts. 100% cuts. now we're in this position that we are now because at that time and in both the biden talks and
the so-called super committee talks democrats said we want to take a balanced approach to the deficit. we are willing to do cuts but the composition of the cuts is something we can debate. but our republican colleagues have been absolutely refused to deal with the revenue part of the balanced approach. now we've seen some movement. although i would point out the letter the speaker sent to the white house says he wants $800 billion but still refuses to identify how they would achieve that. as of right now, i mean the president has been clear how he wants to get the revenue and the cuts. that letter from speaker boehner doesn't specify how they would get the revenue. nor does it specify how they would get the cuts with. exception of the two items that
dave mentioned earlier. which by the way, don't begin to get you the $900 billion in mandatory spending and the $300 cuts in discretionary spending? >> i want to go back to the point that you made about the speaker needing to bring a plan to the floor of the house that the majority of his caucus wouldn't necessarily vote for. can you talk about what is happening in trying to get votes for something that may raise tax rates or folks who have taken a pledge on not raising the tax rates. >> on the republican side? >> yes. >> i don't know how it is going. there are some reports they haven't begun, we're testing different scenarios with their members yet so we don't know. the point i think the speaker should make to his caucus is that even if they are against it, they should vote against it. but that he's doing the republican party a favor, certainly doing a country a
favor, but i would argue doing the national republican party a favor by allowing us to get this issue behind us. it is really clear that the american people don't like the idea that the economy is being held hostage to the fiscal cliff and middle-income taxpayers are being held hostage in order for republicans to get this bonus tax break on people's income above $250,000. far be it for me to give the speaker advice but there is an argument to be made to go ahead and vote against this, i'm not talking about everybody but a good chunk, maybe even a majority. let's get beyond this point and get on to other things and because as you know the biggest tax increase happens if we do nothing. that's a $5 trillion tax
increase. what the president has proposed is taking $1.6 trillion of that revenue, take $1.6 trillion from high income earners but if we go over the cliff we get $5 trillion and on top of that the end of the payroll tax holiday which i believe we should continue in that form or find an alternative that has the same economic benefit going forward. according to the congressional budget office dollar for dollar the payroll tax cut does a lot more for economic growth than some of the other tax extensions. certainly, more economic benefit than extending tax breaks above $250,000. >> under the scenario in which the speaker brought to the floor that basically extended the middle class tax cuts but pretty much nothing else.
are those -- under those conditions do you think democratic votes can really carry the day in the house? >> are you asking two questions -- right if you brought that to the floor of the house the democrats would vote for it. we called for the speaker to bring the bill to the floor of the house. we would prefer, as the president said, to try to get good night agreement that deals with a lot of these issues. you mention things that are important, the president has an influx and wants to invest in infrastructure, we would like to deal with some of the other
pieces as part of an agreement now. but if the speaker, you know, is unable to get his members together for an agreement and wants to bring that bill before the house, democrats will support it. you raised a question about whether republicans will support it and obviously, if republicans oppose the bill i assume under those circumstances we could maybe get that passed. it is not the ideal result, obviously but it would avoid the biggest chunks of the fiscal cliff. it would extend middle class tax cuts, it will include the a.m.t. fix, those are things that are a part of the bill. i should point out that -- if republicans want to take that approach on january 1, the
state tax will revert to about $1 million exception, i think it is 55% rate. what the president has called for is a very reasonable alternative which is to take the estate tax to the generous state tax benefit, you know, since early time in the 20th century which is the 2009 levels which called for a $5 million -- you're first $5 million of an estate no estate tax then to go back to the 45% rate that applied instead of the current 35% rate. the current provision was an incredible sweetheart deal for the wealthiest estates in the entire country. i mean, maybe, like, between 6,000 and 10,000 estates. the american people don't like the idea that the republicans are holding the middle class hostage in order to lock in tax breaks for income above $250,000.
i think republicans are going to be hard pressed to hold the economy hostage in order to get these sweetheart estate tax deal for the 6,000 to 10,000 wealthiest estates in the entire country. >> i'm wondering if you could speak a little bit more about the stimulus measures and the president's proposal. i'm told they are not a priority in discussions right now. i'm wondering if you can predict the likelihood of these measures surviving in some sort of deal, or you know which of the measures will survive in some sort of deal. or what would the likelihood of these coming up later?
>> sure. i think the president, actually, is very focused on trying to get important pieces of the legislation to extend the economic recovery and accelerate it. these are items taken from his jobs initiative which have been sitting in front of the house of representatives for over a year now. one is investing in infrastructure for our roads, bridges, our transit ways. if we look at the fact that we have huge unmet infrastructure needs across the country and combine that with the unemployment rate in construction remains higher. it makes a lot of sense that the borrowing costs are low right now for a project like that.
so that is one item. extending unemployment compensation for people who are out of work through no fault of their own. if you go back to the congressional budget analysis that is one thing that would have a dramatic -- dollar for dollar an important economic benefit. it is not just to help the families that are out of work through no fault of their own get enough money to pay their bills, it is good for everybody. those are people who are on extremely -- extremely tough circumstances. for every dollar they get they go to the shops and buy goods and services. that is why it has an important economic benefit. those two items are important. i mentioned an extension of the pay roll tax holiday that also has an important economic benefit.
we're talking about 160 million working americans with a little bit more money in their pockets to go out and spend. so, you know, i think those items all remain an important part of the conversation. i think they are going -- they are priorities. >> we're going to go to corey. >> i understand your democratic concerns to cuts of social security. if the president and the speaker reach a deal do you plan a passage to the house of representatives? >> until you reach a deal you can't predict what will pass on the republican side or the democratic side. i think the president -- i think democrats are confident of the president is fighting hard for the priorities that he ran on and the priorities he won on.
but every member of congress reserves the right to look at the agreement and decide whether to support it or not. just to clarify again, the president has put forward proposals on cuts. he has $600 billion in additional cuts and savings beyond the $1 trillion that was part of the budget control act. his bucket has more -- the budget he submitted last year, has more medicare savings over the next 10 years than the ryan republican budget had over the next 10 years. it suggests that the president isn't prepared to make cuts and do savings. it is that our republican colleagues don't like the way he has done it. i do feel a little whiplashed on this medicare issue. i think
all of us remember four weeks ago i think it was, we saw all sort of republican and romney ads beating up on the president for saving too in medicare. now the criticism is that he is not prepared to do more. the difference is the republican definition of medicare reform is not to reduce health care costs overall, not to improve coordination of care, it is to transfer rising health care costs on the backs of seniors. we think we should get it, the bigger issue is rising health care costs overall in the private system as well as the public medicare and medicaid. of course, medicaid has the lowest increase per capita cost in the major health care systems. >> two questions. the focus has been among democrats on taxes. what do you make of the suggestion that democrats take
this opportunity to talk about entitlement reform and make it on their own terms? and then, looking into the next congress, what do you want to see from your party? what do you think should be done? policywe'll so a lot of transfer over, of course, but are some of your focus items? >> what was the last part of the question? >> what you would like to see in the next congress? >> on the -- first of all, let's remember the fiscal cliff has defined the kind of issue before us, right? the fiscal cliff contains $5 trillion in revenue, just a side here, if the fiscal cliff were to allow to happen and we want to make sure it doesn't, we would over the 10 year period
overachieve on the simpson bowles goals. we would overshoot them. now, we don't want to do it that way because it too much, too fast, and in the wrong way. the other component in the fiscal cliff is the sequester cuts. so that's why you see the president's proposal lined up as it is. it has $1.6 in revenue aton of the cuts we already did. in terms of -- just in terms of entitlement reform, i want to go back to what i see is a different philosophical approach. we began this effort in the affordable care act. we did save $116 billion. how did we do it?
we ended the overpayments to the private insurance companies. they were being subsidized on average at 114%. we also began to change how we reimburse providers to encourage them to provide better care. we're dealing with dual eligibilities differently. the united states spends 18% of our g.d.p. on health care and its rising. there are not measurably better health care outcomes. our point is, we need to reform the system by modernizing the infrastructure. so you do need to move away from it. that's what we're doing but that's a different approach than transferring rising health care costs on to the backs of seniors. it doesn't do a thing about the underlying issue which is the rapid rate of health care costs throughout our health care system.
if you take a senior, in the medicare program and give them a voucher and put them in the private pay program where per capita costs are going up. they have to eat all of those rising health care costs. that is the way that the plan saves money. so we are in favor of finding ways to reduce long-term health care costs. we have to do that. but we don't think you have to do it by transferring those costs on the backs of seniors. the medium income of a medicare
beneficiary is $22,000. the president's plan, by the way, if you look at the out years, he does have some means testing. this has been on the internet for over a year. but for people who are around $22,000 income -- if there are better ways to save money in the system, we should. now social security, again, i sort of laid out the challenge, it is 100% solvent until 2033 if we did nothing it would pay 75 cents on the dollar. so yes, we should act sooner rather than later. but we should not be raiding social security which is owed in other words to deal with a deficit problem that at least right now was caused by two unpaid wars, a prescription drug plan that was not paid for, and tax cuts that benefit the wealthy. that's why the president's
layout is planned the way it is. down the road, immigration reform has to be an important part of the work we do in the next congress. i hope we do more on energy issues across the board. and finally, i think making sure the united states remains competitive in what will be as the world economy recovers, which we hope it will, we have to invest in our people,
education, our science. other countries are copying the model we used and made very successful. we need to do immigration reform and make sure the u.s. is competitive. >> jackie? >> i wanted to ask about several areas where the democrats leverage might not be so great. on c.p.i. and the medicare retirement age. how does the president say no to those when we came to know in july 2011 when he was negotiating with the speaker he agreed to both of those in exchange to higher revenues. the second one would be on the state tax but the democrats are split on that. i'm curious as to what -- ok, medicare age and c.p.i., the state tax and the payroll tax or its equivalent. i wound what the equivalent is. >> on the payroll tax cut or its equivalent. as you know in the december 2010 tax discussions, we agreed that we would replace what had been the make work pay tax credit and that moved into the payroll tax cut holiday. so there are other ways you can design a similar tax benefit
over a short-term. i stress this would be on a short term, one-term basis because the economy is very soft, very fragile. this means taking a substantial amount of income out of people's pockets if we don't extend the tax holiday or the equivalent. the main reason it is designed in the payroll tax cut because it is an easy delivery. there are other ways you can do it but they are more burdensome. but the idea is to make sure we get the equivalent or as close to the equivalent economic impact. i stress as i do with my colleagues, with the social security has told us not one penny is reduced from the social security trust fund. in other words, this doesn't take one penny out of the social security trust fund
because penny for penny the dollars that do not come in the trust fund come from a direct general transfer, that is just dollar for dollar. i think people would be willing to accept it on the democratic side on a one year basis. i think we could get support for it. in terms of the state tax, the overwhelming majority of democrats think we should go back to what has been considered the 2009 compromise level which was the, again, the most generous state tax benefit -- estate tax benefit since the late 1920's. it was a republican president teddy roosevelt who said we don't want to become a european- style country where people get ahead based on inherited wealth. i would think that we would want to borrow from that vision of america that we're not going to
have a country where you get ahead based on the wealth of the parents you are born to. a $5 million individual exemption and a $10 million for a couple is -- we don't need to do that and bring down the 35% rate. there was 3.5 million exemption, 45% rate and that was generous rate. again, i think overwhelming the democrats support that compromise and again, it is hard to imagine republicans threatening to hold up middle class tax cuts because they want
to get this super sweetheart tax deal for the very wealthiest estates of the country. on the other, obviously, there was no final agreement, first of all, back in december. there were a lot of moving parts, there are a lot of different versions that what happened there. obviously those items were part of the discussion. but we have had an election where these issues and these contrasting priorities were very much a part of the debate throughout the election as well as in presidential debates. so, you know, that obviously has, you know, changed the nature of the discussion, you know. that being said, the president is -- obviously he's in the
middle of negations. my point that i'm trying to make this morning, there are better ways to achieve the same kind of savings in medicare and elsewhere then to simply transferring the cost to the seniors which is what the change in medicare would do. >> we have a couple minutes left so let's go to paul. >> i want to talk to you about the elections in virginia but in answering jack's question. are you suggesting that the speaker wants to wait until he's
re-elected until he makes a concession to the white house? >> what i'm concerned about and this sort of segway out of the question about the rule, you know, my view is -- a deal that would be perceived by the vast majority of the country that would be reasonable that involves compromise on all sides where the speaker may not be able to get, a majority of republicans in his caucus to vote. we could get that kind of deal fun before the end of december and avoid going over the fiscal cliff. but the risk for the speaker, of course, if he brings to the floor of the house a bill that does not have a majority of republican votes that could create more churning within his
caucus and meaning that he doesn't get the votes necessary on january 3. so the chronology here of course is the speaker does not get sworn in until january 3 which is three days after we begin to go off the cliff. that was the concern i was expressing. i hope he wouldn't avoid the tough decisions simply to take us into january and after his swearing in. but i'm becoming increasingly worried that is exactly what is going on. >> in virginia, we have a big election coming up for governor. but the states gone for obama twice now, things seem to be changing over there, and you have a well-known democrat running. how do you see that race unfolding and is it still a -- >> do you mean -- i think the last election showed it was not. as you indicated, even though mcdonnell won the president -- >> your party got hit pretty hard. >> i'm sorry you mean in the mid-term. >> yeah. belldon't think that is a
weather. we got hit hard for a whole variety of other reasons principally being that -- the democrats were still in charge of the white house, the senate and so it was difficult -- the republican argument was pretty trade forward. if you don't like the way things are going there is only one party to blame. right now you still have republicans in control of the house and they seem to be doing a pretty good job of keeping their popularity rating low. i try to offer some ways they can increase their national popularity rating but that does potentially, you know, you've all written about this, that does means certain republican members in certain congressional districts may have to put themselves in a little risk for their primaries for the good of the country and i would argue for the good of the
national republican party. >> two last questions. >> i have one quick question. you talked about the payroll tax holiday. they haven't answered questions about whether they are supporting that extension. is that your impression that one year extension they will support it? and in the process, people have talked about that the president and the republicans should shiites in a room -- sit in a room and talk about it? >> my understanding is that it was on a list of things they want to include but i think the only way to find out for sure is to ask them, again. i do think they recognize the important economic benefit of either extending the payroll tax cut or its equivalent as we talked about earlier. in terms of communication, i don't think that is the issue right now. as you know, the president met with the speaker of the white house over the weekend, they have been on the phone, there is now communication.
it is just a big difference in opinion on how we should proceed. so that requires a willingness to compromise to move beyond the positions and it is not helpful when speaker boehner goes to the floor of the house and asks for spending details. as i mentioned the president has more spending details on the internet an in his documents than speaker boehner has in this three-page letter.
this is it, right? $900 billion in mandatory spending and another $300 billion in discretionary spending. that's it. the president has a whole slew of things he has talked about. i mentioned his medicare savings, not passing the costs to medicare beneficiaries but asking for rebates from drug companies and other things. so the president has been very specific, it is time for the republicans to let everybody know what they are proposing. put theirs on the internet. >> i want to end with a different topic, more about politics. you talked about you have two new counties in your district
and the next congress is going to start the next 10 years of districts. it does not look like it is going to be a good year for democrats. it looks like barring the side of national wave you had in 2006 and 2008 democrats have an uphill battle get back into the majority. do you agree with that? do you disagree with that? >> number one, we think we can get there. we think we can pick up the majority. as you know, we picked up the final count, i think was eight seats in what turned out to be a, sort of non-wave election year. the president did really well but it wasn't a wave election. you are right that, you know, that in the sense that republicans used the redistricting process to their
favor. isever, i don't think that going to overcome the fact that the positions they have staked out on issues are so far to the extreme right of where the american people are. democrats have a big opening with independent voters. what happened in 2010 is that the democrats lost a lot of the independent voters that came out and supported the president as well as democratic congressional candidates. in this last election, the president has gained back a lot of that ground within independent voters. and if republicans keep threatening to bring down the economy by not, you know, not paying on the full faith and
credit of the united states and, you know, keep their current position where their priorities are to provide tax breaks for the wealthy individuals at the expense of the rest of the country. i think you are going to see more and more independents as well as moderate republicans rethink their position. in addition to the fact that republicans have staked out such extreme positions on things like immigration, marriage equality, and other issues. they are losing the generational battle on those important issues. so i think democrats have a real opportunity to pick up a
majority because that's where i think the country is. look at the democratic caucus in the house. look at the republican caucus in the house. ask yourself, which one is america minute that church? it is the democratic caucus.
whether it is younger voters or other voting groups within the country. i think they all see their future is with the democratic party. >> thanks for doing this, sir. we really appreciate it. >> thank you. >> more with applebaum. more from her historical narrative, tonight at 8:00 on q&a. >> now, a discussion of the republicans with jim jordan. currently the chairman of the republican study committee and the incoming committee chairman. this of barrett didn't enterprise institute event is just under one hour. -- american enterprise institute event is just under one hour.
>> i am delighted to welcome you to a presentation by the outgoing and incoming chairman of the republican study committee of the u.s. congress. we are privileged to host this event, to welcome the incoming chairman, and to thank the outgoing chairman, for their service. this is a special friendship between aei and the irs see that we have cultivated, which has been very rewarding for us. it is very unusual to have an event like this, with the outgoing and incoming leaders, for any organization. but the nature of these leaders makes it more likely than what we would see with most other organizations. the republican study committee eighth is not the majority in
congress, but they are the majority of the majority, the majority of the republicans in control of the congress. the republican study committee -- this is language from the charter. i will read it, because i think it speaks volumes about what they are trying to achieve. the committee was founded to serve as an ideological rallying point, where conservatives can stand on the basis of principle, were committed men and women without formal leadership positions can affect a change on their first state in congress, a coming up with a sound policy idea and by articulating a powerful position. it is a friendship we have cultivated for years, especially with executive director paul keller, a great friend to scholars here and and
intern many years ago. the current chairman of the republican study committee is jim jordan, on the right. his term ends at the end of this congress, in a few weeks. as many of you know, jim represents ohio's fourth congressional district. through his last three terms, he has served in the u.s. house, and has quickly become very influential as the republican, standing for absolute principle, principles of constitutionally limited government for a strong national defense, fighting tax hikes, and allowing families to keep more of what they earn. simple principles, but those it behoove is a lot of us to remember. the incoming chairman is congressman steve scalise. he represents louisiana's first congressional district, and was first elected in 2008, one term before the wave election of 2010.
he is known as a staunch conservatives, as is fitting. he advocates for the principles of limited government, as have all the other heads of the rsc. american greatness, limited government, and traditional family values. he is a member of the energy and commerce committee, and has established himself are still living conservative views to national energy policy, which may come up today. congratulations on a successful term, and welcome. [applause] we have a few minutes to ask a few questions, to get some thoughts from jim and steve about how they see the issues ahead of for the past couple of years. jim and i have gotten to know each other over the past couple of years. i have enjoyed that. we have seen a lot of stuff going on.
not nearly as much wheeling and dealing as you have seen in congress. i am sure you have the scars to show for it. over the past tumultuous years, what of the biggest things you think you have learned? >> thank you for having us and for the great work you and your organization do. your books have been tremendous. many rsc members have enjoyed the info. i used the second one, the road to freeman. i have to give a presentation in charge. you were quoted from the hall but. >> have no souls were saved that sunday. >> we appreciate the close relationship we have had with your fine organization. the highlight was frankly when -- i would argue when our republican conference was most united was during the biggest fight we have had this congress, although we are in a pretty important debate right now. in the summer of 2011, we had the debt ceiling debate. as you may remember, we were the entity that put forward this concept that we viewed as a solution, not just another deal, but a solution to our debt
and growth concerns. a solution we called a cut and balance. a united our conference. it was something the american people embrace. unfortunately, harry reid did not embrace it. he tabled it in the senate, and we moved on. it got us decided that we need to cut spending, cap it as a percentage of our economy, and function under a balanced budget requirement. it would help address our fiscal concerns, but more importantly, it would help us get to economic growth. the one thing we need him -- george will spoke to a group of us. he had a great line. when you have 1% growth, it feels like a zero sum game. when you have a 5% growth, it is boundless opportunity. we have to get back to this message.
what can we do to give opportunity to american families, american young people, americans in general? cut, cap, and balance was part of that, getting back to, promoting growth, and the specialness that reagan talked about. it is where we need to be as a party and as conservatives. >> if you have a particular disappointment over the past couple of years, besides the november election, what would it be? "the fact that we did not
patent that. let us be honest. the decisions we made in december 2011 put us in the mess we are in today. if we could have held strong and got a solution and to help solve our fiscal problem and promote economic growth, who would not be where we are today. and we are getting ready to raise the debt ceiling again, and we have yet to make one dime of the promised cuts in the last debt ceiling agreement. that is probably our biggest disappointment, when i look back on it. if we had gotten a better outcome in that debate and that fight, it might have had an impact on who and one in the past election. like we tell our kids all the time, you make decisions. they have consequences. we made a decision to go along with a deal and that is a and bad policy. doing the things, conservatives and republicans stand for and been told republicans we were going to do -- the same situation, where we did not get it done, is my biggest regret.
>> you are taking on a great organization. in the past 15 years, it has gone from 17 members to 170 members. extraordinary expansion because of a good leadership, and because this is the zeitgeist. what to expect to see you building on? what are your big parties? >> of want to thank you for the leadership and wisdom and you give. you have spoken to the rsc in number of times. the more we talk about them, he and especially in those terms, we have a much but ability to bring people to our side, because i think they want to be here. we need to lay it out in a much better way. i want to commend jim jordan for a great two year term. he has the scars to prove he has spent a great chairman. he has given service to all of us.
i am looking forward to see him continue. if you look at where we are, we have great challenges ahead. we know what we are facing, in terms of what this president wants to do, not only in terms of spending, but in terms of a radical policy, attacking some of the basic principles we believe in the secure the american dream. if we look at how we can achieve the things we need to do as conservatives, the first need to recognize the barack obama has talked a lot about a mandate he had. he did not run on a very broad agenda in this last election cycle. things might be bad, but they would be worse under mitt romney and are still, the fault of bush, so do not blame me. this guy is bad, and we need to continue because things are
about to get better. that was the bulk of his message. in the house, we ran on a real conservative agenda. not only a visionary agenda, but we took the hits for the votes we took. we took important votes. we passed a budget out of the house. the senate has not passed a budget in three years. we passed a budget that starts to tackle the input, go bankrupt if we do nothing. we passed reforms i would get us to a balanced budget. we have passed cap and balance. with put real cuts on the table, real economic growth bills, jobs bills, that have a bipartisan growth. we passed a bill a few months ago that prevents the fiscal cliff by saying no taxes will be increased, a bipartisan bill. all of those votes, were criticized for. they called us right wing nuts and extremists. we explain to the people what we want to do to get our economy moving again, but also to control spending in washington. and we were reelected with a mandate not only to continue to be in charge of the house, but
to be the line of defense against the radical administration. i think we know what our task is. i do not think our strength has never been stronger in terms of numbers and resolve. the will be our challenge, because we are going to be tested. summoning members are coming back that have happened to this fight in the last congress. all but, for candidates -- all but four of the 30 candidates elected are talking about joining rsc. they were elected on these principles we believe in. i am comfortable with where we are positioned now, but i know it is going to be a tough ride ahead. we would not be doing this if it was not a mandate the people sent us to go do. >> something on all of our minds is the fiscal cliff.
i would be remiss if i did not ask you both to weigh in on it in the following way. first, what is going on that we do not understand? number two, what should happen? number 3, what is the rsc going to do to help us get to that sector state, and what should happen? either of you want to chime in on that? >> first of all, if you look at where we are right now, and because of a number of reasons, a few of them going back to the last debt ceiling bill -- i did not vote for the budget control act, and because it did not address the real problem, and that is spending. if you look at the debate, it is mostly a debate about how much in taxes to raise, and the president keeps moving the goal post.
he keeps adding more to it. he has an insatiable appetite to spend money and attack other people for it. we are not talking about addressing the real problem. i do not think anybody's taxes should go up. barack obama said three years ago, if you raise taxes in a bad economy, it will make things worse. we are still in a bad economy. we ought to be focusing on the real problem, preventing texas from going up. to get people working again -- that was the biggest issue to come out of the election. president obama is not talking about how to control spending. all he wants is an unlimited debt ceiling increase, so he can continue going forward. you are going to see rsc members continue to fight for those principles to solve these problems. >> tax increases are going to promote his growth.
you should not do it the wrong policy. our conference does not have a tax reform plan. rsc when to simpler rates on the personal side. you need that inspiring -- this is going to help every single family. we do not have that message now. and we should not raise taxes, certainly. that is wrong. it does not how growth. we need a plan that inspires. everybody understands the tax code is broken. some acute here are too lazy to raise their hand. they nod their head. any tax code that says to approximately half the population, you do not have to participate in the main tax, is broken. any tax cuts as to the american companies, we are going to charge to the highest corporate rate in the world, that is stupid. we need to fight. here is what we are for.
here is what helps our family. here is how it makes a difference for you personally. this is what it will mean more opportunity for your kids, it has to connect personally with families across the country. people are saying the republican party, after this loss, needs to change. we have the right principles. we just need to present them better, the way arthur talks and writes about. oriented toward the family. i never intended to get into politics. i was going to coach rustling forever. -- wrestling forever. iran because i care about families and opportunities. it starts with the tax code, but it has to connect in that way. steve understands that. that is what this organization is doing such great work.
>> thanks for that. you mentioned something about the debt ceiling. that is an esoteric topic for a lot of americans. the president of the united states has proposed to have, at his discretion, be able to raise the debt ceiling of the united states in an unlimited way forever. without the approval of congress. what is the big deal? >> it is practically the most frightening proposal that has come out of this town, and a lot have. when you add on the entitlements that are unfunded, the president, i do not think, has a knowledge, and maybe he does not recognize that one of the greatest threats to economic freedom and to the american dream home -- i have a five-year-old and a three-year-
old. i think most people that have young kids recognize the ability to have the same opportunity we have today is at risk because of spending. they will not play a single cut on the table. he comes up with a ludicrous proposal to have unlimited increases in the debt ceiling, so he can continue expanding as much as he wants. >> i am sure you are aware of the research of our economists have done on how to solve the fiscal crisis here. one of the things we find very clearly is that countries that try to solve fiscal crises on the basis of revenue increases through taxes tend to fail.
those that succeed rely at least 85%, on average, on spending cuts. this is the empirical truth. effectively, this is the right approach. you often wonder, when you see what appears to be the endorsement of the president's policies, as ratified in the last election. here is a slightly philosophical question. we have said a long time -- i know you have agreed with this. you wanted your values to be represented. they are american values. what does it say that this election when the way it did? we were talking about how to solve our fiscal problems. whether or not our problems with those of understanding or under texting.
-- under taxing? what does it say about the american people and how our republic is changing? >> the big deal is the constitution. somehow, the president wants to forget about that and be able to spend and borrow. how it makes no sense to me. kelvins work is great stuff. it is all good work. >> our chief economist. sorry. >> it is great work. i do not know that you can extrapolate and say -- you have two people running for office. the incumbent won and our guy lost. i wish our guy won. i thought he was going to. i thought it was going to be closer. many of you have all kinds of explanations about what
happened and why it happened. there is a host of things. i do think what i said earlier. we have to make sure we are presenting what we think is best for the country in a way that connects with american families. when we do that, we win. our party is about four issues -- lower taxes, less spending, a stronger defense, and traditional values. when we have, he and that who can present that in a compelling way, we wind. when we have members of congress who can present those things in a compelling way, and we win. i do not think anything has changed. it is always msnbc talking about how we have to behave. we will take it for what it is worth. when we stick with our principles, and present them with the right tone and the right passion, in the right way, we win. and we are in an important
moment in the conservative ahead of movement. we have to be willing to do the extra work and make sure we prevail and win. this campaign was a populist and divisive. it shows you that if populism and division go unchecked, there are people that will buy into that argument, if they are not shown the other side of it. i think not a good enough job was done at not only defending free markets and conservative beliefs, but getting into this question of tax fairness, and the concept of sticking it to the other guy, when the other guy is behind the tree. instead, not the intention of wealth. one of the great things of our country is it encourages everybody to sacrifice
everything. look at the people who drop out of harvard and are billionaires' because of our great system. do not forget about the millions of great jobs created. it was not just about their wealth. going deeper into the question of how president obama's decision to raise taxes -- maybe somebody can afford to pay more. if you give this president more money to spend, is he going to use it to spend even more money? most people recognize he is going to wasted on more efficient government. middle-class families are not getting those jobs. obamacare has tax increases on middle class families, which most people have not realised
yet. >> the fairness point is interesting. most of us who descended from immigrants would be hard- pressed to imagine our ancestors coming to the country to get a system of forced income redistribution. the redefinition of the fairness argument is probably a key thing you guys have been talking about, something we all need to contemplate a little bit better. something that keeps us awake at night, regarding the fiscal cliff, is what will happen in the defense sequestered. if this rolls over and there are of some of the budget cuts, and january 1, there will be relatively indiscriminate cutting across the defense budget. according to scholars, this is a very dangerous thing.
can you weigh in on that? >> we have a bill i've proudly sponsored that moves those cuts to discretionary. energy and commerce was one of the committees have taxed on finding other areas to cut. we identified those things. we were attacked for wanting to cut things that people like. frankly, some of them are things people recognize we cannot afford to do. and but we lay those cuts out there. it is a bill i stand behind today. the worst thing would be to shut off the sequester altogether. we need to have a sequestration to cut spending. all would like to see a shift of the defense cuts to other parts of the budget. >> i feel the same way. i have said the only thing worse than defense cuts are no cuts of all. we may differ a little from
some of her scholarship. and i think it is important to remember a strong national defense is what our party is about. many of you probably remember condoleezza rice's speech at the republican national convention. the world is a scary, a dangerous place, but less scary and dangerous when america leads. if you want to leave it diplomatically, you had better leave militarily. if you want to lead militarily, you better lead economically. she captured what we need for a safer planet. america needs to lead. part of that is having a strong national defense. we should replace those cuts. we have supported that legislation. we have a member who has put together and the bills we passed this summer. one would extend all tax rates, which had 19 democrats support it. we have 19 democrats say before the election we should not raise taxes on any american.
we also have the defense cuts, he sequester replacement legislation, which would replace defense cuts with cuts to other parts of the government. we have that bill ready. within that is where we need to go. >> i would give the rest of my time to the audience. here are the basic ground rules we usually imposed. if you have your hand up, he will find you. please wait for the microphone. say who you are in your organization. and put your protest statement in the form of a question. we will start in the front. >> david grant, "christian science monitor." to get back to your point about putting conservative policies into something families understand, one thing that has been discussed in the aftermath of the election is immigration. i wonder what you have thought about, whether you have discussed it in the rsc, and whether you have discussed a legalization process for people here illegally, which seems to
be the main sticking point between the parties in the past. >> we have got some great members of rsc that are interested in being in this debate in the next congress. i think you will see it escalate. i will mention labrador and goodlat specifically. labrador did this before coming to congress and understands this inside out from a conservative perspective. helping leave this debate will be critical to solving it, rather than using it as a political wedge. >> like with any -- you stick with your principles, you are going to arrive at the right policy. that is what we need to do. we need to remember that we should not just give amnesty.
for people who legally come here, we want to work faster. a better process, so americans who want to experience mahatma we have experienced have that opportunity. if you have never had a chance to go to and naturalization ceremony, and they are an amazing thing. when the new citizens say the of, and they realize that are not a citizen of the greatest country ever, that all want to get a picture with me, and i have nothing to do with it. it is amazing. it is a special moment. i have done for of these. we want to make the system work better and quicker for these folks. steve is exactly right. congressman labrador is focused on this issue. i think he will really help us. his office is next door to mind. he is a good friend.
i think we are going to move forward and get something positive done. >> your hand was up next. >> dale johnson, a free-lance writer. while i agree the individual part of the tax code is probably stupid, and the corporate part is broken, or the other way around, i worry about the center part, the small business people. especially as we talk about revising the corporate tax rate, may be bringing that down to 25%. if we still have individuals paying a small business taxes at 35%, that is a killer. do we need to create a new tax credit for small businesses, 10% on small businesses? >> what we certainly need is a simpler, fairer system. we have so many thousand exempt from taxation. it is 10% to a certain level. it is 20% to another. you get rid of most deductions and credits.
you have to keep the mortgage interest deduction. you keep things. something old like that -- here we are. old and simple. frankly, if that top rate is low enough, maybe we do not have the big concern you just highlighted. >> you were next. >> a blogger and tea party activist. i want to know why the republicans, specifically mitt romney -- nobody would listen. they would not even listen to aei. i contacted, just personally, a citizen, contact the romney campaign for several years. they would not listen. it is very frustrating that regular people who do not
belong to fancy campaigns, who just regular iq's, nothing to touch yours -- >> you might be surprised. >> and whatever. i guess, with all due respect, we know how to communicate with the people on the ground. quite frankly, the republicans have to get cooler. i hate to say that. but in a country where the number one show is "two and a half men," we need to communicate better, with better sound bites. what happens to men when they get on capitol hill? those men who were soldiers -- could they just loosen the tie? this is war. this is absolutely war. honestly, we have a functional, dishonest and president.
please fight back. thank you. >> you want a tough guy, we have jim jordan, former all-american wrestler. how do we fight? >> i have said it a couple of times. you present principles and we know work, and have worked historically. you do it with a smile. i have always loved the line, "i am a conservative, and i am not mad about it." you do it consistently, courageously, but with a smile. when you have the truth, one of the happy about it? when you have good news, have a smile on your face, even if it involves reading from martha's book in church. >> every campaign is different, which is why you might have a congressional seat where a republican who was a staunch conservative, and yet his mitt romney may have lost. communication is critically
important, how we talk about the conservative things we believe in. going to those nontraditional places -- we have colleagues that go on to telemundo and univision. not everybody does. we need more of that. >> a lot needs to be done on communication. all the way in the back corner. >> republicans were remiss in their communications on the charge that wealthy people, the income over 200, is taxed at a lower rate. it is aggressively taxed. according to the cbo, that is not true. i have said this myself a couple of times on c-span.
i was the mailing american crossroads. if you do not respond, obviously, 50% are going to believe it is true. mitt romney's personal situation, if he paid an effective rate of 14%, if, on average, the rate rises as income goes up, that means somebody else above 200 is compensating for that. that is number one. my question is, for the upcoming debt negotiations, he can the republican conference insist on at least $250 billion of savings for 2013? you authorize $750 billion, if it is going to be a $1 trillion deficit. can you insist on $250 billion?
>> we certainly should insist on some down payment on some fiscal sanity in the congress, in the government. i think back to my response to the first question, cut, cap, and balance. let us make a down payment on this first year, and do something politicians never do, which is reduce spending. you give us your tax money now, in the future, he will cut spending. and we really promise. give us your money now. it never happens. raise taxes now. increase the borrowing authority. we promise to cut spending in the future. last week, it was lucy and charlie brown. we did the same thing in the last that sivan agreement. -- debt ceiling agreement. that is something we will be pushing to do in the context of
this debate, but also in the context of what i hope will be a debt ceiling debate that takes place in february and march of next year. >> let me follow the question with a related one. it is one thing to stand up to the president. when we look at the way government spending, as a percentage of gdp has risen more under republicans and democrats, how can we do with that a little bit better? >> we have done this the last three years of the republican study committee. we actually put out an alternative budget. we believe by putting out a budget that shows a path to balance in a reasonable time -- our last one balanced in 5.5 years, according to the cbo. the budget we passed -- that gives us a better chance to market that. i think that is part of the vision, how this is going to
help your family, your community, if we get to balance what that means for opportunity, for growth. >> it is an important point. i came here in 2008. one of the things that have frustrated me -- our state has the balanced budget amendment. we have to balance our budget every year, like most states. with the republican house and senate, we saw spending growing dramatically. when the republicans were fired for spending too much money, the deficit was around $140 billion. today, it is over a trillion dollars. the bigger issues -- when we get to the next debt ceiling, that is going to be the big leverage piece to reform entitlements, starting with medicare. nothing is going to change, but
it has to be reformed. if it sustains itself, you'll never balancer, federal budget until you make the entitlement reform. that has to be part of the discussion in the debt ceiling negotiation. the president is going to make it out to be the only problem, and anybody who does not give him the money is irresponsible. what is irresponsible is we are spending too much money. we are going to continue doing it until we reform the big entitlements. >> we want to go right to the middle. >> the question may be for all three of you. senator demint is moving to a friendly competitor. i would be interested to hear
your comments on that event. >> really? >> the heritage foundation is a pioneering group. they have done important work. i am a donor to heritage, and a proud one. and these guys have done a lot of stuff over there as well, and it has been a pioneering organization. hyping this is the kind of move that can keep them in the line of sight for american conservatives. they are a conservative movement think tank. i think it is a smart move. this is a lot of speculation about how he is going to lead. the truth of the matter is, you never know how a leader is going to lead. january 1, 2009, exactly four years ago, he came from syracuse university.
a was a professor of business and government. i heard that aei had checked out of the, world of ideas. some boring guy come up with a phd from syracuse. months later, i read that aei was being led by a right-wing maniac. it is the same guy. you do not know how anybody is going to lead. i am friends with jim demint already. i look forward to cultivating that. i think really good times are on the horizon for those guys. >> will miss his voice in the senate, but there has been a long, strong relationship between heritage and the republican study committee. a strong relationship will continue with him at the helm. and we will miss him. >> heritage is a tremendous
organization. as steve said, the rsc when heritage have been linked for years. that is where ed got his start. senator demint, we will miss him in the senate. there has been nothing better in standing up for the principles we care about. he is an honorable, and wonderful guy. i was hoping he would run for president several months but. >> turns out he did. >> i am going to tell him arthur says he is going to write a check to aei now. >> the gentleman in the back. >> recently, you talked about providing a vision for the future, for conservatives. there was a paper that took a
brave position. we come to find out that he has been fired. you think that was a wise decision for a party that needs to be reaching out to voters? when can we expect more balanced? >> i take it you are talking about copyright in particular, but there were other white papers. in general, when you look at where we are going to go, it is going to be the members of of thought rsc have to unite and fight for the principles we believe in, to get conservative wins. we are going to be swimming upstream in a number of fronts, with a lot coming at us, and we know that. we are looking forward to that challenge. but the only way to be successful is if the members -- and the staff plays a critical role of giving us the tools we need to go to battle. at the end of the day, it is
only when the membership, a strong membership, maybe 170, hit we can unite together as members of congress to shape that vision in a conservative way, will be successful. my main focus is going to be uniting our members that know what our task is. we are going to do it with a great staff, led by paul teller and a number of others. >> over here. we have a microphone coming to you. >> a was really struck by your focus on families and by the principles. one principle i have not yet heard is the idea that washington politicians cannot solve these problems alone, and that conservatives should think about strategies for empowering states to help conservative
solve these problems. we have talked about a house rule that would recognize the 10th amendment authority of states, which might be the only way to force congress to propose something like cut, cap, and balance. what discussions are you having? >> i have already spoken to my predecessor, bobby jindal, the head of the republican governors association. in the next two years, i want to be working closely with the governors. the majority are republican governors. just like we propose conservative solutions in the house, those governors have great integration ideas about how to successfully tackle problems they have already done.
obviously, and we have seen a number of things bobby has done in louisiana to reform our states. we can invoke as great ideas, working hand in hand, not only through hearings at the legislative level, but sharing the successes that governors have had a go a different way from the obama big government approach. those governors have to balance their budgets. they are doing in while taking care of the needs of their states, and in many cases far exceeding and outpacing and economic growth, much better jobs. lower unemployment numbers in many of those states, where they are led by republican governors, who are approaching the challenges of our nation through conservative solutions. we are going to be working with them. >> let's go to this table over here.
>> recently, there has been a lot of discussion because top conservatives [no audio] i would like to knock you have any comments on that. >> i think it's wrong. it's unfortunate. it's not healthy. it's wrong. i think it is largely because these guys voted against some of the big issues, the debt ceiling. it is unfortunate that it took place. hopefully there is a way to help fix it going forward. you think about the example. come on. representing 70% of the state from kansas and the member from
that district has been on the agriculture committee cents there has been an agriculture committee. it's been a long time. he gets kicked off that committee. by the way, he has a ph.d. in agricultural policy. it makes no sense to me. hopefully it will not happen again and there is a way to remedy. >> it is unfortunate members were removed from their committees. i fought to get more members on key committees. i have talked for years, it was a point of my campaign as chairman to get more members on the committee. that is something i have talked about for a number of years. i talked about that specifically as part of the campaign. i want to formulate a larger block of rnc members on the
steering committee. we will be working on that in the next term. >> over here, in the corner. >> you both have made clear you do not think tax cuts would be effective. sorry, tax increases. you have also made clear [indiscernible] is there any room for compromise if democrats agreed to spending cuts? is there room for compromise on the top rate? >> no, you have to step back and look it will help our economy. everyone knows washington has a big spending problem. we're heading to our fifth year of $1 trillion debt. we have heard 1000 times we promise. these are politicians making the
promises. we promise, and give us more money, and we will use it to reduce the deficit and debt. never happens. it is a joke to go down this road. i know we are in a tough situation because of decisions made in the past. on january 1, taxes go up. that is because we made bad decisions in the past. here we are. that does not mean you go against the thank you no work that will solve the problems. you cannot do that because it is bad policy. it will not help to grow the economy or create jobs. the problem is you cannot trust them, particularly the guys in congress. you just cannot go there. >> you have to go back and look historically. we have done this. we have never found a time in modern history where raising taxes led to a balanced budget. it has never happened. we found a number of areas --
the president likes talking about, he and bill clinton have a great affinity for each other. he loves talking about the clinton tax increases as if that is what balance the budget. it did not. it was not until later. the republican congress comes in and finally controls spending. that is when we got to a balanced budget with economic growth. 1980's, in thend 2003 tax cuts we are debating now, the federal government through tax cuts to give tremendous increases in revenue. if you want to get new revenue, within three years, the federal treasury to an 40% money by cutting taxes. the myth that you need to raise taxes to get more revenue, i would argue history proves tax cuts generate it through economic growth to get you to a balanced budget. should we focus on fixing the problem or appeasing the
president's pound of flesh he wants to get out of class warfare he played during the campaign? >> you are saying the tax rate increases proposed by the president are more a statement of philosophic principle than economic principle? >> it goes to his class warfare message more than anything. history does not back up is good policy. he in 2009 said it is bad for economics. if you increase taxes in a bad economy, he will make the economy worse. he made that case in 2009. we're still in a bad economy. >> a wonderful point. i am in the unfortunate position of calling the last question. i will give the last question to janet at the front table. >> would speaker boehner be able to pass it without the rnc?
>> i do not know. if it has a tax increase in it, i will not be for it. there are lots of numbers that will not be for it. the rfc does not always function as a unit. i knew it going in, but you see it firsthand. we will see. we have said it settled in a way is that we should not be raising taxes. -- we have said it several different ways that we should not be raising taxes. >> i would not support raising taxes. i am focused on working on a solution to the problem. the president has not put out a series proposal. we have passed resolutions which
bipartisan vote. the only thing the president has talked about is very partisan. he campaigned on a promise he would work in a bipartisan way. we're calling on him to fulfill his promise to work in a partisan way. it is a good place to start with ideas we have put out there. they would be proven to work and focus on growth rather than growing the size of government through taxes. >> i want to say thank you and god bless you both for your service to our country. [applause] >> president obama will be in connecticut this afternoon. we will have live coverage of his appearance. he will be meeting with the families of the victims of the friday school shooting and finding the first responders. he will speak at a vigil. we will have live coverage beginning at sea of -- at 7:00 p.m. on c-span.
>> the prime minister announced unemployment dropped to 7.8%, the biggest drop since 2001. he also talked about spending cuts, a proposed tax increase on middle income workers, the u.k. immigration policy, and renewable energy. that is tonight at 9:00 on c- span. >> the white house is very controversial. there was competition to design it. americans were not having a palace. it was not particularly our- inspiring. -- awe-inspiring. the congressman said the building served its purpose. if it were larger and more
elegant, perhaps some president would be inclined to become its permanent resident. >> she has gathered a few of her favorite white house photographs. watch tonight at 7:30 on c- span3's "american history tv." >> a senate finance subcommittee hearing looked at whether a tax incentives and energy policy will promote energy efficiency investment and economic growth. witnesses included representatives from the national energy laboratory. this is one hour and 20 minutes.
ahead andn't we go get started? today's hearing considers some proposals to promote efficient use of energy resources. the tax code has long served as a way to promote energy policy goals. most of this time, the code only offered incentives for the production of energy. 1st for mineral resources and then for oil and gas. recent years have brought important incentives for renewable energy resources. unfortunately, many of those remain temporary and uncertain. even more recently, congress has decided to reintroduce certain tax incentives to promote the
efficient use of energy, recognizing the value of preserving domestic resources by developing technologies that use less energy to accomplish the same task. with the possibility of a comprehensive tax reform and in the context of a contentious debate on how to close the federal deficit, we need to assess the existing policies to determine if the goals are worst -- worth the cost to the taxpayer. if they are, i believe energy efficiency is a worthy policy goal. then we need to examine the best and least costly ways of achieving that goal. today's hearing, we have a panel of expert witnesses who will help us consider these three issues. first, to understand the opportunities presented to our
economy, infrastructure, and environment that result from more efficient use of resources. second, to consider creating incentives through the tax code as a sensible and efficient way of promoting energy efficiency investments. the third question is to examine how we can improve our existing incentives to make them more effective, it easier to use, and less expensive to the federal government. , we the past two congress's have been very involved and worked to develop reforms to our existing incentives. whenever possible, we have adhered to general principles we believe to be consistent with the goals of tax reform.
it is driven by technology- neutral structures that offer incentives based on performance which energy-saving technology. we have worked to ensure savings can be verified and that fraud is minimized to the greatest extent possible. finally, we sought to ensure that innovative new technologies can utilize existing policies. the result of this work is three bills introduced in this congress. one focusing on the commercial buildings reduction. one focusing on tax credits for homeowners. and one that promotes efficiency in the industrial sector. i hope we can examine how these bills fit into the discussion of outlined above. i welcome an honest assessment of the bills and encourage
thoughts on how they can be improved. this morning's hearing will consist of one panel of distinguished witnesses. let me introduce them briefly. dan arvizu is the director of the national renewable energy laboratory in colorado. we clean him in new mexico -- reclaim him in new mexico. next is steve nadel from the council on the energy efficient economy. we have mark wagner, a vice president with johnson controls. finally, matt golden is a principal at and the policy chair at efficiency first. before our call on our witnesses, my colleague who is soon to be the chair of the
energy committee and a distinguished member of this finance committee was very interested in these issues, let me defer to him. >> as you know, there is not a lot of certainty about what goes on in the united states senate, including when the senate session may rock but for this year. i just want to know -- note there is one certainty for everyone that works in the energy field. that is that these debates will be less thoughtful and less informed because you will not be part of those debates. i think people are going to understand that when voices it raised and debates get shrill, just how valuable those particular are tributes are.
you always brought us back to reality when debates seemed to move in different directions. by just want to note that while this may be the last energy hearing for the year, there are a lot of us who will make sure cell phone connections between washington and new mexico are operating so that we cannot continue your weiss -- so that we can continue your wise counsel and got on issues. if you would like to give a round of applause, i will not have a particular problem with that. [applause] >> thank you for your very kind words. i am sure as soon as i get out of town, you can solve all of these problems. i am trying to hasten that day. thank you very much for your
kind comments. let's go across the table and have everybody take however long you think is necessary to make the comments you think we ought to be aware of on these subjects. we will try to shed some light on the issue of using the tax code to achieve some of these objectives. dr. arvisu, go ahead. >> thank you for this opportunity to discuss how energy efficiency concepts and technology can strengthen our security and economic growth. i will submit written testimony with your approval. >> will include everyone's written testimony as if it were read. >> i am the director of the national renewable energy laboratory, the primary laboratory for research and development in to clean energy
technologies and research into more efficient ways to construct and operate buildings. it is an important part of our mission. we do not take positions on legislation and policy. i will speak about the advancements achieved through federal investments and the proven benefits these bring to our nation. also serve on the alliance to save energy commission when release next year, the recommendations will be comprehensive and a road map for the future. we have learned in this region we have learned -- we have learned energy efficiency is important. that realization has been confirmed repeatedly on the national scale. three years ago, mckinsey showed by 2020, the u.s. could reduce non-transport energy consumption by 1/4.
it would pay back more than $1 trillion in savings. the report found the nation could save money by cutting energy consumption by 30% and produce the same amount of goods and services. we have calculated hundreds of measures currently available could reduce energy consumption by 1/2 by 2013. the cost savings would be twice the dollar amount investment. these reports suggest to realize the potential, public policy is necessary. a leading example of success is the commercial building partnership sponsored by the department of energy. its partners with owners and operators on new buildings and retrofits resulting in compelling results. one project cut energy consumption by 35% at the target
store. they are now busy replicating that enterprise-wide. at the support facility where i have my office, there is another example of how much can be accomplished when efficiency is a fundamental attribute of the building design. net 0the world's largest office building. energy consumption is 1/2 of a building built to code in our region. it is cost competitive and includes solar panels on the roof. i invite you to take a look for yourself. private residences which comprise more than half of the energy consumed provide equally large opportunities for savings. the program has demonstrated homes can have 40% energy reduction at no additional cost in almost every climate zone. the habitat for humanity home
proved ambitious targets and goals can be accomplished with tight cost constraints. simulation tools are continually being refined so businesses, consumers, and policy-makers have the most accurate insights and to make the best decision possible. industrial efficiency is where our new technology can dramatically improve things. one example is the fast-growing data center industry. we have the new high-performance computer system in competing and energy efficiency. the comparable data center today would be 13 times more energy consuming than the new system. i have recently been reminded of how susceptible our buildings are to natural disasters. we will consider the related
advantages of energy initiatives in protecting buildings against all types of apparel. i commend the committee for considering initiatives in our nation. my years in research convince me that these solutions can be fruitful in putting great strides in energy efficiency. the use on a national scale is admirable. thank you for the opportunity. and look forward to questions. >> thank you. mr. nadel, go ahead. >> i want to second his comments. thank you for your many years of service in the senate. you have been a leader for the energy and finance committee. we appreciate all you have done for energy efficiency over years here. i want to briefly acknowledged
senator snowe who is also retiring she has also worked tirelessly introducing energy efficiency legislation. in your opening remarks, you talked about three questions. he addressed the first question. i want to concentrate on the next two. you asked if the tax code is an appropriate vehicle for promoting investment. you asked us to discuss the best structure for tax incentives. regarding the first question, based on our research, we conclude the tax code can be an appropriate vehicle for promoting energy efficiency investment. it depends on how the tax incentives are structured. we have found the tax incentives enacted in the 1980's were not very effective
at spurring substantial savings. most of the participants took the money but were taking the same options even without the same incentives. the amount of the tax credit in the 1980's was too small to spur additional investment. tax incentives enacted in 2005 were more targeted. they emphasized advanced technology and paying higher incentives. our review has found the tax incentives for new homes and appliances were very effective in growing the market. incentives for residential heating and cooling equipment and vehicles were very successful encouraging the development of new products and purchase of the most effective products. based on these experiences, we concluded the most useful tax
incentives target long-term structural changes in the market using temporary federal assistance to build the market for energy efficient products. at this point, the market can continue to grow at supported by other programs and policies. we have labeled this process the market transformation approach. we use tax incentives to establish a sustained long-term market. we should target advanced technologies that currently have a low market share. with federal support, the market share can grow and better prospects -- better prosper on their own after the incentives end. we should leave it to manufacturers on the level. by focusing on products with
levels that have a small market share, we can keep costs down and minimize the amount of free riders. federal role is particularly useful in the early stages. it can make it more likely manufacturers and contractors will make the investment to develop market-qualifying technologies and services. it will be harder to transform markets without federal involvement. the same market transformation approach can be used for other technologies. it could do transformation for renewable energy sources. when these techniques become established in the market, the federal incentives can be phased about. returning to energy efficiency, we analyzed the cost saving of five-year tax incentives for
several products and services. we found all the products we analyzed where highly cost- effective. our analysis is summarized in a written testimony. the average cost to the treasury for the credits was only 28 saved,er 1 million btu's making them highly cost- effective. we found the most cost-effective options includes tax incentives for commercial buildings, new homes, heating and cooling appliances. we also found a whole house energy-saving retrofits were also very cost effective. the next to the witnesses will be talking about commercial and residential buildings. i will concentrate on the other provisions. incentives for efficient new homes were among the most cost effective in our analysis. these are subject to recently
expired incentives. we recommend the requirements be updated. the market has moved. the levels need to be strengthened. we believe it is appropriate to reinstate these provisions and continue them for the next five years based on the updated qualification levels. the combined heat and power systems are poised to make substantial strides as utilities and customers look to replace old plants. a tax incentive will spur more power systems during this critical time. the bill modestly expense -- 16 existing incentive -- expands an existing incentive. there is one provision that is very timely.
it provides a credit to encourage replacement of old chillers that harmed the ozone layer. some of the old ones remain. they used excessive amounts of energy. building owners are reluctant to replace them because of the upfront costs. the incentives would cover part of the costs only be available for three years. there would be limited window to take advantage of the incentives. that provision has innovative provisions that will be useful from a market transformation perspective. in my written testimony, we discuss problems with depreciation for commercial and chp systems.
we recommend congress revised the is so they are based on the average service life of the equipment. in conclusion, we recognize the number of costs need to be substantially reduced. based on our analysis, we recommend limited funding be set aside for provisions with the largest savings in federal investments. these have a large multiplier effect and are intended to be revised after five years. we would be happy to work with you going forward to help to design incentives which the most bang for the buck. >> thank you. mr. wagner, go ahead. >> we are an energy services company. for years, companies like ours have been in the business of